Euro zone confidence improves, highlights divergence

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"We're seeing a slight stabilisation and we expect the recession the euro zone will end in the spring," said Christoph Weil, an economist at Commerzbank.

"But we can also see that the divergence in the euro zone is increasing and that is of great concern," he said.

The European Central Bank's decision in December to provide 3-year loans to banks averted a credit freeze, while the U.S. economy expanded strongly in the last quarter of 2011 and China has remained robust, maintaining demand for Europe's goods.

But budget austerity and political divisions over how to solve the two-year debt crisis continue to depress business in the euro zone and the wider European Union, with non-euro zone country Britain heading for a recession in early 2011.

The rising optimism is still tempered by EU leaders' inability to resolve the euro zone debt crisis and the sentiment indicator was slightly lower than forecast by economists polled by Reuters.

Following last week's surprisingly positive purchasing managers' indices, or PMIs, business climate rose for the second month in a row to -0.21, in line with economists' expectations.

But factory managers saw a deterioration in the view of their order books and although this was offset by a positive assessment of stocks, it confirmed the mixed economic picture.

Industrial confidence remained at the lowest level since April 2010 while confidence in services rebounded by 2 points in the euro zone and construction was up 0.6 points.

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